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1/ So I recently purchased a working crystal ball from @Target. Weird I know- but this one works.
Any who, I asked what Corporate Venture in the consumer/retail world would look like in 5 years. I saw the future. So here is my interpretation
Any who, I asked what Corporate Venture in the consumer/retail world would look like in 5 years. I saw the future. So here is my interpretation
2/ Over next 12 months, more and more CEOs of public consumer co's will feel big pressure to perform. Their growth sucks (that’s a technical term), they have no pipeline of innovation, and they are losing market share to a long-tail of <$15m rev brands
3/ At same time 3G and activist hedge funds are pushing for short-term (quarterly!) performance. That’s accelerating a vicious cycle of the large strategics sacrificing LT growth and focusing on cost cutting to hit short-term performance. They are dying.
4/ [Oh and they have some opinionated tech CEO calling them out on Twitter…...ok fine they don’t care about that pt. But the rest is tough to deal with]
5/ Back to the crystal ball from Target. Here is how I saw the next 5 years playing out.
2019: THE PROMISE. Large consumer/retail companies are going to lean hard into Corporate Venture Capital, if they haven’t already.
2019: THE PROMISE. Large consumer/retail companies are going to lean hard into Corporate Venture Capital, if they haven’t already.
6/ Big press announcements. Flashy events. Hiring teams that are way too big for the size of their “funds”. And same buzz whether it’s $10M or $100M check from parent co.
7/ By end of 2019 those teams are presenting progress to CEO.
They got into 3 deals. Paid absurd prices. Zero visibility to ROI….strategic or financial.
“Only 3 deals? And we only invested $4m? We have a team of 10 working on this. The math doesn’t make sense at all.”
They got into 3 deals. Paid absurd prices. Zero visibility to ROI….strategic or financial.
“Only 3 deals? And we only invested $4m? We have a team of 10 working on this. The math doesn’t make sense at all.”
8/ “Either do larger deals or do more deals. And do you really need a team that size?” - Says CEO who has never sourced a VC deal in her/his life.
9/ 2020: THE BEGINNING OF THE END.
Team can't figure out how to do more deals and their resources have been cut. Expo West has 80k people at it. They can't find enough deals quickly enough to deploy more capital.
Team can't figure out how to do more deals and their resources have been cut. Expo West has 80k people at it. They can't find enough deals quickly enough to deploy more capital.
10/ Junior person #1 asks “do we care more about strategic value or financial return? That will help us focus.” Gets brushed aside. Junior person #1 leaves 3 months later in disgust over jumbled strategy. Junior person #1 is an allstar that any co would be lucky to have.
11/ Team makes a new plan and schedules meeting w/ CEO. “We just have a lot more conviction in the larger deals. We want to focus on writing bigger checks into few co's.” CEO is distracted by share loss of billion $ brands. Gives OK to focus on >$15m rev co’s w/o much thought.
12/ Team doesn’t mention to CEO that live deals are really hard to find. Then need to (a) do larger deals or (b) can’t justify team of 10. $100m allocation makes no sense when they can only invest into a few [small] deals a year.
13/ Team fails to discuss/understand the fact that the larger deals (>$15m in rev) were already getting calls from 80+ consumer PE funds. Prices getting bid up further. Returns go down. Financial returns are no longer a reason to get excited.
14/ Team decides to gloss over the fact that the the “strategic value” of having a smaller portfolio of larger companies is…….pretty low.
15/ Think about it. What drives strategic value for the CPG/retailer?
-Broad base of co's. Lot’s of visibility into innovation. (big N)
-Glimpse into co's/categories earlier. $15m rev co's? Those were already on M&A radar…..so what’s the value again of this corporate VC fund?
-Broad base of co's. Lot’s of visibility into innovation. (big N)
-Glimpse into co's/categories earlier. $15m rev co's? Those were already on M&A radar…..so what’s the value again of this corporate VC fund?
16/ 2021: THE RECKONING.
Junior Person #2 points out that they only have 9 companies in the portfolio. “How the heck are we going to find strategic value with just 9 companies?”
She leaves the company. Junior person #2 becomes founder of highly disruptive consumer co.
Junior Person #2 points out that they only have 9 companies in the portfolio. “How the heck are we going to find strategic value with just 9 companies?”
She leaves the company. Junior person #2 becomes founder of highly disruptive consumer co.
17/ A few others of the original team leave. The investments don’t live up to their lofty valuations. They only have a few bets. One of them looks interesting but everyone knew that brand anyway.
18/ A mid-level person wonders “why are we doing private equity style deals to find innovation? Innovation is found in VC. No one here even has experience doing PE or VC. Maybe we should outsource this?”
19/ Year ends. CEO of Parent Co. “steps down to spend more time with family” (got fired) because broad based cost cutting efforts surprisingly didn’t drive growth. Who woulda thunk?
20/ 2022: NEW SHERIFF IN TOWN.
New CEO is appointed by board. CEO looks at corporate VC (PE!) program and realizes it doesn’t work. “This is mid-market private equity. We’re not seeing enough strategic value to justify this. We’re shutting it down.”
New CEO is appointed by board. CEO looks at corporate VC (PE!) program and realizes it doesn’t work. “This is mid-market private equity. We’re not seeing enough strategic value to justify this. We’re shutting it down.”
21/ Everyone is fired. The 14 companies now in portfolio get orphaned w/ no support from the parent co. that was never really aligned with the investments in the first place and was unable to add much supply chain / branding / distribution value at that stage.
22/ 2023: A NEW HOPE. CEO gets pitched on just outsourcing their venture investments. Get a broad base of hundreds of companies by investing externally.
23/ They allocate $250m across a few venture firms that focus on consumer. The firms invest into 150 innovative companies. They find strategic value in understanding the portfolios.
One of portfolio companies was founded by Junior person #2.
One of portfolio companies was founded by Junior person #2.
24/ Turns out that allstar Junior Person #1 who left three years earlier is on the team managing a majority of the allocated capital. Junior person #3 says “Wait why the heck did we want to do direct investments instead of going through funds?”
25/ If only the company. had had purchased a crystal ball back in 2019 from Target.
